New Pass Now Questions

Which of the following terms is used to name the nontaxed return of unused premiums? a) Interest b) Surrender c) Dividend d) Premium return

dividend The return of unused premiums is called a dividend. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums.

A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy? a) Joint and survivor b) Life with period certain c) Joint limited annuity d) Joint life

joint life Joint life annuity settlement option pays benefits to two or more annuitants, but stops upon the death of the first.

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? a) 10 days b) 3 days c) 5 days d) 7 days

5 days Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

During the grace period, the policyowner can a) Add riders to the existing policy. b) Renew the policy without proof of insurability. c) Pay a late premium without penalty. d) Return the policy to the insurer for a full refund.

Pay a late premium without penalty A grace period is the period of time specified in the policy that allows the policyowner to pay a premium after due date without penalty, or without policy lapsing.

Which of the following are generally NOT considered when underwriting group insurance? a) The size of the group b) The insureds' medical history c) The nature of the group d) The group's past claim experience

The insureds' medical history Group life insurance is written on a group, not individual basis. Each individual completes an application that identifies the participant and beneficiary. Then, the group is judged based on its nature and past claim experience. Generally, medical questions are not necessary.

When is an insurance license considered inactive? a) When it's a temporary license b) When no company appointment is in effect for the license c) When the agent is not conducting business with the general public d) When renewal fees are not paid

When no company appointment is in effect for the license When a licensee has an in force license, but is not appointed by an insurer as their agent, the license is inactive.

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision? a) Common Disaster b) Accidental Death c) Survivor Life d) Second-to-Die

common disaster Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.

The Commissioner may suspend an applicant's license without a hearing if the applicant has had another professional license suspended or revoked within what time period? a) 6 months b) 12 months c) 5 years d) 7 years

5 years According to CIC 1738, an agent's license may be suspended without hearing if another professional license has been suspended or revoked within 5 years.

An insurer may discriminate against a person through underwriting if that person has a) Been a fare-paying passenger on a regularly scheduled airline flight. b) No previous history of buying life insurance. c) A history of buying and canceling insurance policies. d) A physical handicap that could result in an actuarially predictable loss.

A physical handicap that could result in an actuarially predictable loss. Physical or mental impairments may not be used to discriminate against a person in the underwriting of insurance unless it can be shown actuarially or on the basis of "actual and reasonably anticipated experience" that such persons represent extraordinary risk to the insurer. (CIC 10144)

Which of the following is NOT an allowable 1035 exchange? a) A life insurance policy is exchanged for an annuity. b) A whole life insurance policy is exchanged for a term insurance policy. c) A whole life insurance policy is exchanged for a Universal life insurance policy. d) An annuity is exchanged for another annuity.

A whole life insurance policy is exchanged for a term insurance policy. The key is that the exchange may not be from a less tax-advantaged contract to a more tax-advantaged contract. "Same to same" is acceptable.

Which of the following is true regarding written binders? a) Both the applicant and insurer can write a binder. b) Binders serve as a receipt that the insurer is processing the application. No coverage applies. c) Binders prove that the insured has insurance coverage, even though the policy has not been issued yet. d) Binders apply only to Life insurance. Binders serve as proof that an individual is insured while the policy itself is being processed. Note that in California, binders cannot be written for Life insurance.

Binders prove that the insured has insurance coverage, even though the policy has not been issued yet.

How is the premium in an insurance policy determined? a) By subtracting interest from mortality b) By multiplying the rate by the number of units of insurance purchased c) According to the number of dependents d) By dividing life expectancy by premium mode

By multiplying the rate by the number of units of insurance purchased The premium is determined by multiplying the rate by the number of units of insurance purchased.

All of the following statements about equity index annuities are correct EXCEPT a) The annuitant receives a fixed amount of return. b) They have a guaranteed minimum interest rate. c) The interest rate is tied to an index such as the Standard & Poor's 500. d) They invest on a more aggressive basis aiming for higher returns.

The annuitant receives a fixed amount of return. Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.

All of the following are true regarding a decreasing term policy EXCEPT a) The payable premium amount steadily declines throughout the duration of the contract. b) The death benefit is $0 at the end of the policy term. c) The contract pays only in the event of death during the term and there is no cash value. d) The face amount steadily declines throughout the duration of the contract. Premiums remain level with a decreasing term policy; only the face amount decreases.

The payable premium amount steadily declines throughout the duration of the contract.

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen? a) The insurer will increase the interest rate on the loan and charge a penalty. b) The insurer will not permit the policyowner to take out any more loans. c) The policy will be reduced to an extended term option. d) The policy will terminate when the loan amount with interest equals or exceeds the cash value.

The policy will terminate when the loan amount with interest equals or exceeds the cash value. In most policies, failure to pay back a loan will result in termination of the policy if the total amount of the loan and accrued interest equals the cash value.

Which of the following is NOT a goal of risk retention? a) To increase control of claim reserving and claims settlements b) To fund losses that cannot be insured c) To minimize the insured's level of liability in the event of loss d) To reduce expenses and improve cash flow

To minimize the insured's level of liability in the event of loss Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.

All of the following information must be communicated in an insurance contract EXCEPT a) Information the other party already knows. b) Information that is material to the contract. c) Information that is material even though it cannot be proven. d) Information not requested by an agent and company, even if it's considered relevant.

information the other party already knows Information that is already known by all parties does not need to be communicated in a contract.

During a sales presentation a producer intentionally makes a statement which may mislead the insurance applicant. This describes a) Defamation. b) Twisting. c) Coercion. d) Misrepresentation.

misrepresentation Making false or misleading statements with the intent to defraud another is misrepresentation.

An employer offers group life insurance to its employees for the amount of $10,000. Which of the following is true? a) The value of insurance will be deducted from the employees' compensation. b) The cost of coverage paid by the employer is taxed to the employees. c) The cost of coverage paid by the employer is tax deductible by the employees. d) The cost of coverage is a deductible expense by the employer.

the cost of coverage is a deductible expense by the employer The cost of coverage paid by the employer in excess of $50,000 is taxed to the employee.

In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT a) The amount of insurance. b) The type of investment. c) The length of coverage. d) The premium.

the type of investment Typically, the owner of an adjustable life policy has the following privileges: increasing or decreasing the premium, changing the premium-paying period, increasing or decreasing the face amount of coverage, or changing the period of protection.

Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner? a) A buy-sell agreement b) Family term rider c) Third-party ownership d) An irrevocable beneficiary

third-party ownership Contracts that are owned by someone other than the insured are known as third-party ownership. Most policies involving third-party ownership are written in business situations or for minors in which the parent owns the policy.

When would a 20-pay whole life policy endow? a) After 20 payments b) In 20 years c) When the insured reaches age 100 d) At the insured's age 65

when the insured reaches age 100 A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.

Which of the following best describes a misrepresentation? a) A failure to disclose known facts. b) An intentional omission of material information on the part of the insured. c) A statement that is not guaranteed to be true. d) A statement intended to distract, mislead, or deceive a party to a contract.

A statement intended to distract, mislead, or deceive a party to a contract. Misrepresentation is a written or oral statement that is intended to distract, mislead, or deceive a party to a contract.

Which of the following best describes annually renewable term insurance? a) It is level term insurance. b) It requires proof of insurability at each renewal. c) Neither the premium nor the death benefit is affected by the insured's age. d) It provides an annually increasing death benefit.

It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

All of the following are the responsibilities of every long-term care insurer in California EXCEPT a) Establish marketing procedures to assure excessive insurance is not sold or issued. b) Submit to the Commissioner a list of all agents authorized to solicit individual consumers for the sale of long-term care insurance. c) Provide enough business to solicit long-term care insurance. d) Establish marketing procedures to assure that any comparison of policies will be fair and accurate.

Provide enough business to solicit long-term care insurance. Long-term care insurers must maintain strict requirements. These include establishing marketing procedures to assure that comparison is fair and accurate and to assure that excessive insurance is not sold. In addition, insurers must semiannually submit to the Commissioner a list of all agents authorized to solicit for the sale of long-term care insurance.

If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a a) Guaranteed insurability rider. b) Paid-up additions option. c) Cost of living provision. d) Nonforfeiture option.

guaranteed insurability rider The Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the a) Incontestability clause. b) Reinstatement clause. c) Insuring clause. d) Misstatement of Age clause.

incontestability clause If an insurer wishes to contest any statements on an application, they must do so within the first two years.

The Medical Information Bureau (MIB) was created to protect a) Insurance departments from lawsuits by policyowners. b) Insureds from unreasonable underwriting requirements by the insurance companies. c) Medical examiners that perform insurance physical examinations. d) Insurance companies from adverse selection by high risk persons.

insurance companies from adverse selection of high risk persons The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Which of the following is TRUE regarding the annuity period? a) It is also referred to as the accumulation period. b) It is the period of time during which the annuitant makes premium payments into the annuity. c) It may last for the lifetime of the annuitant. d) During this period of time the annuity payments grow interest tax deferred.

it may last for the lifetime of the annuitant The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

Applicants for insurance who are blind may be rated substandard for life insurance a) Only on the basis of information unrelated to their blindness. b) Only if they have been blind from birth. c) Only if their blindness resulted from an injury. d) Always, because they cannot avoid the risk of injury or death.

only on the basis of information unrelated to their blindness Blindness from any cause may not be used as the basis to refuse to insure, refuse to continue to insure, or limit the amount of coverage available, or use as the basis for a different rate. (CIC 10145)

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe? a) Retention b) Reduction c) Transfer d) Avoidance

reduction The insured's change in lifestyle and habits would likely reduce the chances of health problems.

An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a/an a) Self-insurer. b) Authorized insurer. c) Local insurer. d) Certified insurer.

Authorized insurer. Insurers who meet the state's financial requirements and hold a Certificate of Authority to transact business in the state are considered authorized or admitted.

Acting as an agent for a nonadmitted insurer (unless a surplus line broker) is considered a/an a) Felony. b) Class A violation. c) Unfair trade practice. d) Misdemeanor.

Misdemeanor. Unless a person is a surplus line broker, it is consider a misdemeanor in this state to act as an agent for a nonadmitted insurer in the transaction of insurance business.

What is the advantage of reinstating a policy instead of applying for a new one? a) The cash values have gained interest while the policy was lapsed b) The original age is used for premium determination c) Proof of insurability is not required d) The face amount can be increased

The original age is used for premium determination The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status.

An insurer invests the money it receives from premiums paid by its insureds. Which of the following is TRUE regarding the interest earned on these investments? a) It is used to lower premiums. b) It is paid out as dividends. c) It is used to fund executive bonuses d) It is used to increase the death benefit.

it is used to lower premiums Because insurers receive premiums before they must pay out benefits, they can invest the premium money and use the interest to lower premium amounts charged to insureds.

The Commissioner of Insurance supervises and regulates the insurance affairs in the State of California, and is chosen by a) The State Senate. b) The people. c) Admitted insurers. d) The Governor.

the people The Commissioner is elected at the same time that other State officials are chosen

If a policy includes a free-look period of at least 10 days, the Buyer's Guide must be delivered to the applicant a) Upon issuance of the policy. b) Prior to accepting an initial premium. c) Prior to filling out an application for insurance. d) With the policy.

with the policy If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium

An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement? a) $0 b) $100,000 c) $200,000 d) $100,000 plus the total of paid premiums

$200,000 The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.

Which nonforfeiture option provides coverage for the longest period of time? a) Extended term b) Paid-up option c) Accumulated at interest d) Reduced paid-up

reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE? a) Policy loans are taxable distributions. b) Accumulations are tax deferred. c) Withdrawals are not taxable. d) Distributions before age 59 1/2 incur a 10% penalty on policy gains.

withdrawals are not taxable Any distributions from MECs are taxable, including withdrawals and policy loans. All of the other statements are true.